What is financial planning and why is it important?

Financial planning is coordinating the various financial areas of your life to help achieve desired goals in an efficient manner. These may be short-term and long-term goals, and a financial analysis should incorporate a client’s investments, cash flow, insurance/risk management, tax, liabilities, and estate planning. Most people push planning into the future, as there isn’t a “deadline” to complete the process. Many people don’t have a defined financial plan. They say they “do their best” to defer as much into their 401k as they can, try not to run up too much debt, have a round number amount of insurance, and hope they can pay for their children to go to college one day. Financial planning can illustrate the long-term implications of these decisions. The earlier you start planning, the more time you have to live out a successful plan.

John Cadwell, CFP®
Wealth Management Advisor

Who performs a financial plan for you?

During the planning process, the most successful plans involve several participants. The financial planner is typically gathering and compiling client information and is the individual most versed across the financial spectrum. The planner will often bring in other specialists such as portfolio managers, accountants, estate planners and others to provide additional expertise and help the client take action. Many plans include family members, as well.

How should I choose a financial planner?

You want to find someone knowledgeable, experienced and trustworthy. This isn’t imperative, but someone with a CFP® designation (Certified Financial Planner) has extensive training across the previously mentioned financial areas and is held to a fiduciary standard (working in your best interest). You’ll also want to choose someone who is a good communicator and with whom you enjoy spending time. Planning is an ongoing relationship, and you’ll want to feel comfortable contacting and sharing information with that person.

What does the planning process look like?

At the beginning, you’ll be asked to supply details such as income, expenses, liabilities, investment statements, current estate planning documents, tax returns and more. You’ll also share general and specific financial goals, as well as your wishes about transitioning assets in the future. The planner builds out your balance sheet and cash flow statement to get an understanding of your current and future financial position. This data is assembled into software that shows your current trajectory and, with your input, adjustments are made to see how they impact the plan’s success. You’ll receive clarity around when you can retire, what rate of return you need to meet goals, how much insurance is needed to protect your family, if you can you be more strategic with debt, as well as many other areas of your financial situation. In summary, financial planning provides a view of today and of the future. When implemented correctly, your plan should provide you with financial strength and peace of mind.